First time NAP, second time Bankrupt. How often does this really happen?
The ITS have recently completed an analysis into the multiple insolvency rate of debtors, and how likely a debtor is to enter into bankruptcy after first having been in a No Asset Procedure (NAP), compared to those who entered into bankruptcy the first time around.
The NAP was first introduced into the New Zealand insolvency regime in December 2007. The conditions of the NAP exclude anybody from entering into the procedure if they have previously been bankrupt. Bankruptcy, therefore, can only occur after a NAP, not before.
Although the NAP has only been in effect for 10 years it is clear from the data that the likelihood of becoming bankrupt after entering a NAP is extremely unlikely. Of those who entered into a NAP more than five years ago, only 85 debtors have subsequently become bankrupt, representing 0.8% of NAP debtors during that period. In other words, 99.2% of NAP debtors who entered into a NAP more than five years ago have not entered into a formal insolvency procedure since.
If we consider the short-term likelihood of a debtor entering multiple insolvencies the stats get even better. Of those who entered into a NAP during the last five years, only 9 debtors (or 0.1% of debtors) have since become bankrupt.
The analysis conducted by the ITS confirms that the multiple insolvency rate for NAP debtors is consistent with that of bankruptcy debtors. Of the debtors who entered into bankruptcy between 1 July 2008 and 30 June 2012, 99.2% of them have not been bankrupt since; while 0.8% have entered into bankruptcy for a second time. Similarly 12 debtors (or 0.1% of debtors) adjudicated bankrupt within the last five years have been declared bankrupt a second time since their initial adjudication.
The ITS believes the data shows that the procedures are working well, and there is no greater risk of multiple insolvency for NAP debtors compared to bankruptcy debtors.
Table 1: Multiple Insolvency Statistics; 2008/09 – 2016/17
1st Time NAP
1st Time Bankrupt
|Year||NAP adjudications per year||Subsequently went bankrupt (actual)||Subsequently went bankrupt (%)||Bankruptcy adjudications per year||Subsequently went bankrupt a 2nd time||Subsequently went bankrupt a 2nd time (%)|